ECB President Lagarde pushed back against stagflation concerns but said elevated uncertainty prevents clear guidance on the next interest rate decision.

Summary:

• ECB President Christine Lagarde said the eurozone economy is not in a stagflationary environment.

• She noted the economy has greater capacity to absorb shocks than in 2022, though uncertainty is currently higher.

• Lagarde reiterated the ECB’s commitment to taking necessary measures to control inflation.

• She said policy uncertainty remains elevated, making it difficult to give guidance on the next interest rate move.

• Remarks came during testimony before the European Parliament’s Economic and Monetary Affairs Committee (ECON).

European Central Bank President Christine Lagarde said the eurozone economy is not facing a stagflationary environment, while emphasising that policymakers remain cautious as uncertainty clouds the outlook for interest rates.

Speaking at a hearing before the European Parliament’s Economic and Monetary Affairs Committee (ECON), Lagarde said the eurozone currently has a stronger capacity to absorb economic shocks than it did during the energy crisis in 2022. However, she warned that the global economic backdrop remains highly uncertain, limiting the ECB’s ability to provide firm guidance on future policy decisions.

“We have a greater capacity to absorb current shocks than in 2022, but uncertainty is greater too,” Lagarde said, noting that the ECB will continue to closely monitor incoming data and developments affecting the euro area economy.

Lagarde also pushed back on concerns that the region could be entering a period of stagflation — a combination of weak growth and persistently high inflation that can complicate central bank policymaking.

“We are not at all in a situation of stagflation,” she said.

The ECB chief reiterated that the central bank remains committed to ensuring inflation returns to its 2% medium-term target, and that policymakers stand ready to act if price pressures threaten to remain elevated.

“We will take the necessary measures to keep inflation under control,” Lagarde said.

At the same time, she declined to offer explicit forward guidance on the ECB’s next interest rate decision, highlighting the unusual level of uncertainty surrounding the economic outlook.

“There is currently such uncertainty that I cannot say what we will do on interest rates,” she said.

The remarks come at a time when financial markets are closely watching the ECB’s policy path following the aggressive tightening cycle launched in 2022 to combat the surge in inflation triggered by the post-pandemic recovery and Europe’s energy shock. While inflation across the euro area has cooled significantly from its peaks, policymakers remain cautious about declaring victory too early.

Lagarde’s comments suggest the ECB is maintaining a data-dependent approach, balancing progress on inflation against ongoing risks to economic growth and external uncertainties.